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The High Court has ruled that a failed hotel development venture in France amounted to a partnership, despite the absence of a written agreement. The decision serves as a clear warning of the legal risks involved in informal business arrangements and highlights the importance of documenting commercial relationships at an early stage.
Background to the Dispute
In June 2018, a man and woman discussed developing a property in France into a boutique hotel. The woman agreed to invest in the project and, in July 2018, they met in Dorset to discuss how the venture would operate.
At that meeting, it was agreed that the man would receive £2,000 per month, described as a salary. No written agreement was signed, and the only contemporaneous record was a photograph of a whiteboard used during the meeting.
The project ultimately failed. In February 2022, the woman informed the man that she wished to exit the venture. Their relationship deteriorated, and in December 2022 she sent an email proposing that the property be sold and that any remaining funds, after costs, be divided equally.
She later issued proceedings seeking to terminate what she claimed was a partnership. The man, however, argued that he had been an employee, pending the securing of third-party investment.
High Court Finds a Partnership Existed
The High Court concluded that the arrangement agreed at the Dorset meeting was clearly a partnership.
Key factors supporting that conclusion included:
- an agreement to share profits;
- contributions by both parties, including the woman’s capital investment and the man’s purchase of a BMW for the business;
- the intention that the man would contribute art and furniture to the venture; and
- the maintenance of joint records relating to the project.
The Court found that these features were consistent with a partnership rather than an employment relationship.
Why This Was Not an Employment Relationship
The Court identified several factors inconsistent with employment, including:
- the absence of control over the man’s activities;
- his autonomy in shaping and frequently changing the vision for the project;
- his role in engaging contractors, arranging utilities and liaising with potential investors; and
- his overall position within the venture, which was characteristic of a partner.
Although the monthly payments were described as a salary, the Court held that this label was not determinative. In substance, the man acted as a partner.
Termination and Winding Up
The Court rejected the argument that the arrangement was a partnership at will that could be exited freely at any time. However, it accepted that the venture had clearly failed: the capital had been spent, the property was not operational as a hotel, and external investment had not been secured.
In those circumstances, the woman was entitled to terminate the partnership. The Court held that her email of 15 December 2022 effectively brought the partnership to an end.
The Court ordered that:
- a partnership existed;
- it was terminated on 15 December 2022; and
- the partnership’s affairs were to be wound up, with full accounts and inquiries to be prepared.
Q&A: Partnerships and Informal Business Arrangements
Can a partnership exist without a written agreement?
Yes. A partnership can arise through conduct and agreement, even where there is no formal documentation.
Does calling payments a ‘salary’ mean someone is an employee?
No. The courts look at the substance of the relationship, not just the labels used by the parties.
What factors indicate a partnership?
Profit sharing, joint decision-making, contributions by both parties and lack of control are strong indicators of a partnership.
What happens when a partnership ends?
The partnership must be wound up, with assets realised, liabilities settled and accounts prepared.
How can disputes like this be avoided?
By putting clear, written agreements in place at the outset and taking legal advice before investing or committing resources.
Contact Us
Business ventures can quickly give rise to unexpected legal consequences if arrangements are not properly documented. Our Commercial and Partnership Disputes solicitors advise individuals and businesses on partnership formation, termination, and disputes.
If you are planning a joint venture or are involved in a partnership dispute, contact Willett & Co Solicitors today for clear, practical advice.